NLRB Overturns Obama-Era Independent Contractor Test
On January 25, 2019, the NLRB repealed the test devised by the Obama Board to determine whether an individual is an employee or an independent contractor under the National Labor Relations Act ("NLRA"). Critically, the NLRA grants employees various rights and protections, including the right to form and join unions. Independent contractors have no such rights.
In SuperShuttle DFW Inc., 367 NLRB No. 75 (2019), the Board announced that it was reverting to the common law test that it had followed for many years, and under which it is much easier for a business to establish that a worker is an independent contractor. Applying the common law test to the facts of SuperShuttle, the Board found that individual franchisees (owner operators) operating vans at the Dallas Fort Worth Airport were independent contractors, not employees.
The Board explained that the common law test for determining whether a worker is an independent contractor derives from the Supreme Court’s decision in NLRB v. United Insurance Co. of America, 390 U.S. 254 (1968). Under United, the inquiry requires analyzing ten (non-exhaustive) factors concerning the relationship between the purported employer and worker, and the nature of the work performed.
In the years following United, the Board and courts evaluating these factors began to shift the emphasis from control of the manner and means of performing the work to whether the workers "have significant entrepreneurial opportunity for gain or loss." However, in 2014, the Board significantly altered this rule. In FedEx Home Delivery, 361 NLRB 610 (2014), Board held that entrepreneurial opportunity should be confined to the analysis of (only) one relevant factor in the overall test concerning whether the worker is engaged in an independent business. This refinement was viewed as tilting the analytical framework in favor of finding employment status more readily, and thus providing more workers with the NLRA’s rights and protections, including the right to organize. In overturning FedEx, the SuperShuttle Board explained that the Obama Board’s test was an incorrect deviation of well-established law. The Board further held that the traditional pre-FedEx test should apply where the ten factors are viewed through the lens of the worker’s entrepreneurial opportunity.
The Board’s return to the common law standard, with particular emphasis on worker’s entrepreneurial opportunity, is particularly significant in the modern gig-based economy. The business model at issue concerning airport shuttles is similar to ride-share businesses and other similar services. Service-based workers who are minimally supervised, own their instrumentalities of work, and operate as their own small businesses are more likely to be considered independent contractors under the traditional test. Accordingly, any efforts by these workers to unionize or engage in other concerted activity may face severe obstacles.
It should be noted that other laws, including several very restrictive state laws, such as the "ABC test" applied in California, New Jersey, Maryland and Massachusetts, tilt much more strongly in favor of finding employee status, affording workers greater rights to legal benefits such as wage/hour protection, workers compensation, and unemployment benefits. Nevertheless, these various state laws are inapplicable to an individual’s status under the NLRA and thus, his/her right to organize, form and join a union.
We will continue to follow the impacts of this decision, and the other changes to NLRB precedent promulgated from the current Board.